How Bitcoin (and other cryptocurrencies) could help small and medium entrepreneurs from developing markets to tap into the global economy
Bitcoin and the blockchain principle that underlies cryptocurrency are inspiring the imagination of developers, investors and entrepreneurs across the world. Just imagine everything we could do with it, everything we could revolutionise! Every major industry now has its own blockchain think tank, and they gather at conferences to explore new possibilities. But one opportunity is often overlooked: Bitcoin could integrate small and medium businesses from developing countries into the global economy within a few years – a leapfrogging chance for entrepreneurs that often do not even have a bank account.
Access to the global market
In developing countries, advanced financial technologies, such as Bitcoin, are still in their infancy. And the ways money is dealt with are very diverse: There’s still wooden cash boxes for savings in many villages, but there are also transparent administrative budgets, microcredits and mobile money payments (e.g. m-Pesa), that work without the intervention of banks. This coming of age is of utmost importance: because dealing with digital money is a learning process. It generates knowledge that can help entrepreneurs and individuals to achieve independence.
According to McKinsey 2.5 billion people across the developing world have no access to banking or basic financial services. So how would you start a business without a bank-account? What if you wanted to export products? What if you wanted to sell your goods online? How would you receive your customer’s payments? That state of being “unbaked” means, that if a start-up in Kenya creates a great product (say, a 3D-Printed prosthesis) and wants to sell it online, they can’t get paid. They’re practically removed from the formal global economy.
But what if they could get paid via cryptocurrency (e.g. Bitcoin)? Would it enable them to enter new markets? Could it bring them more wealth? Or at least more opportunities to create value? Last year all cryptocurrencies combined had a market capitalization of over $13 billion. And not only western businesses use Bitcoins to do business:
I Have Bitcoins, is helping artisans in rural India to sell their products (e.g. paintings) to a global market in exchange for Bitcoin. Instead of selling paintings to exporters who mark up prices dramatically, the artists can benefit from the purchasing wealth of developed nations. That means: With the aid of a smartphone, artisans can open their own businesses in the global marketplace.
Another application of Bitcoin in developing markets is Bitpesa, a Kenyan banking platform, that enables African importers and exporters to make real time transactions in multiple currencies. Operating in Kenya, Uganda, Tanzania, and Nigeria, Bitpesa has helped international clients to cut out transfer fees and to send out secure bulk payments. For example, mid-sized firms operating in Kenya and Uganda who switched their banking to Bitpesa can send out the payroll to cross-border employees in a matter of minutes, instead of a matter of days. And KJ Cargo, operating between the United Kingdom and Nigeria, saves up to 15% on transactions and no longer waits a week for transactions to be fulfilled. This example clarifies: Thanks to Bitcoin, not only African businesses can operate across borders, but multinational companies are finding that they can do business with Africa like never before.
Cut out transaction costs in remittances
Without a bank account allowing for international money transfers, most people from the Diaspora use companies like Western Union to send money to their families abroad. Transferring remittances is expensive, with the poorest countries being charged the highest fees. For example, Western Union charges around 9.5% when you send money to Kenya, which is about the average international remittance fee.
But In South Africa an average fee of 22.7% is put on money sent to Botswana! According to estimates of the World Bank, more than 1.2 billion Euros have been sent from Germany to Africa in 2015 – that is almost the same amount of money the BMZ is spending for international development in the region. Imagine how much money could be saved if there were no transaction fees? The potential is huge, but there must be a downside to it – no?
Where are the problems?
Well, one is the classic problem that arises in any ICT-application (not only in developing contexts): It’s the usability. Imagine that your employer told you that next pay period, your company will start paying you in Bitcoin and tells you that you have to install a Bitcoin-wallet on your phone. How would you react? Sure you’ve heard about Bitcoin, but you have lots of questions as to what it will mean to receive your salary this way, such as: Where can I use Bitcoin? Can I spend it like Euros, or will I have to convert first? Where can I convert? How much is the conversion fee?
There are other fields that remain uncertain, as well. One, for example, is the volatility of Bitcoin exchange rates and the general uncertainty around regulations that might arise (keep in mind China’s ban on bitcoin). Just recently, Mike Novogratz, who appointed himself “the king of Bitcoin”, stated that Bitcoin might be the “largest bubble of our lifetimes”.
How could we solve this?
Though the future of Bitcoin is hazy, it is clear that it, along with other cryptocurrencies (e.g. Ether and Litecoin), will play a role in shaping the future of the global economy. There are several compelling reasons why cryptocurrencies have captured the world’s attention. The decentralized operating system makes cryptocurrencies a safer alternative to storing money at a third-party institution (e.g. banks). Furthermore, they are entirely determined by market demand, meaning that they are not controlled or regulated by some singular authority – which may well be the future of our global economy.
The verdict is out: Businesses that fail to adapt to new currencies may be left behind. So it’s time to wrap your heads around the potential applications for businesses in developing markets. “The sooner you understand how cryptocurrencies work, the better you will be prepared for a rapidly evolving financial landscape.”https://due.com/blog/cryptocurrency-small-business-need-know/
During our Blockchain & Finance session at ii2030, we will co-create concrete solutions to the questions of: How can businesses in developing countries use Bitcoin? How can Bitcoin help them to expand their business beyond borders? And how can we support entrepreneurs in leveraging this technology?
What is Bitcoin?
“Bitcoin is a form of digital currency, created and held electronically. No one controls it [because it is decentralized]. Bitcoins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems.” It’s the first example of a growing category of money known as cryptocurrency.
How does Bitcoin work?
Bitcoin is also described as ‘the trust machine’. This trust machine is based on the so-called blockchain technology. So how does a blockchain work? A blockchain is a chain of transactions that are stored and distributed in a database in a decentralised network. Every network operator has a complete copy of this database (and that’s the main reason why Bitcoin is so carbon-heavy), so he does not need to trust blindly in any other participant. Verification through a central intermediary is no longer required; rather, each participant checks whether an entry is formally correct.
This blogpost was authored by Kathleen Ziemann (Trend Reporter @ Betterplace Lab) and Megan Leahy-Wright (Endeva), who will lead the Blockchain & Finance track at ii2030, with support from the Make-IT Initiative. The blogpost draws upon the results of Betterplace Lab’s innovation research in trendradar.org.